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Thursday, July 30, 2015

Is Offering the Windows 10 Upgrade for Free Good or Bad?

Microsoft is introducing its Windows 10 operating system for free to licensed users of Windows 7 or 8. Free is a powerful word in marketing. Who doesn't like receiving products for free? At first glance, this strategy appears to be a winner. However, effective marketing is often counterintuitive, and it is not clear that this is the right strategy. Experienced marketers know that there is an intricate connection between pricing and positioning. If used properly, one can boost the other. If not, one can bring the other down.

Microsoft track record

In its heyday, Microsoft could do no wrong. It was a company that was in the right place at the right time when IBM fell in its lap with a large contract to create the first IBM PC operating system. It was able to capitalize on just about every opportunity. Even the movie Pirates of Silicon Valley, which covered the period of 1971 to 1997, portrayed Bill Gates and Microsoft as winners and Steve Jobs and Apple as something akin to losers - needing an investment from its archrival, Microsoft, to stay afloat.

That was then... this is now

After Steve Ballmer took the helm in January of 2000 until he left in 2014, Microsoft's stock price was stuck in neutral - bouncing between the mid-$20's to low $30's per share. During this period, those with major stakes in Microsoft were calling for his ouster, and the marketplace did not see anything really new from Microsoft for a long time. Meanwhile, there have been a series of expensive disasters and disappointments including the Vista and Windows 8 operating systems, the Bing search engine, and the acquisition of Nokia's handset business. While some liked the Surface - Microsoft's entry into the tablet market - sales have been more than disappointing. Since Satya Nardella took over with Bill Gates back on the Board, the stock has risen some - fluctuating in the mid-$40s, but Microsoft recently laid-off 7,800 people and basically wrote off the entire value of the Nokia deal. It is in this context, that Microsoft is offering its Windows 10 upgrade for free.

Notice there is no Windows 9

Many believe the fact that there is no Windows 9 shows that Microsoft wants to further distance itself from Windows 8. From a branding perspective, the skipping of 9 and jumping to 10 has at least one positive - it connotes that Windows 10 is a bigger more substantial upgrade. On the other hand, it puts Microsoft in the uncomfortable position of having to explain the jump.

Has Microsoft lost its mojo?

The biggest problem for Microsoft is it hasn't had a big win in a long time. Moreover, it has not offered upgrades for free before. It is in this context that giving Windows 10 away free to Windows 7 and 8 owners might have negative branding consequences. It is analogous to owners of empty restaurants encouraging passersby to patronize their restaurants with big discounts. Those unfamiliar with these restaurants will see the empty tables and think the food is not very good and those that are familiar have already voted. While Microsoft is still a great company with products most of us use everyday, it has been following rather than leading. Offering the new operating system for free is not likely to inspire confidence that it is a winner. Buyers believe that hit products have long lines of users wanting to buy them at whatever the price. A price of zero, while welcomed by those that have already decided, it is not likely to convince those that have not.

What you get for nothing is usually good for nothing

While Microsoft is a validated brand, free might work. On the other hand, many will ask themselves if it is so good, why are they giving it away (especially since Microsoft has not given free upgrades before)? A better strategy is price the upgrade at a premium and offer vouchers to those the company believes deserve a free copy.

Brand gives control over the price

Marketers "in the know" understand that control over the price is the reward companies earn from developing great positioning strategies for their products. Without a proven track record, Windows 10 has to overcome the skepticism created by its predecessors - Vista and Windows 8. Free is unlikely to overcome these obstacles and convince the skeptics. Once Windows 10 becomes the hit Microsoft hopes it will be, Microsoft will have more control over the price it charges. Right now, price may be an important validator, and an upgrade price of $0 does not validate much. Time will tell how well the pricing of this upgrade works. Stay tuned.

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